Warren A. Hakanson v. Judith K. Holland, Trustee of the G.W. Hakanson Living Trust ( 2010 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
May 18, 2010 Session
WARREN A. HAKANSON, ET AL. v. JUDITH K. HOLLAND, TRUSTEE OF
THE G.W. HAKANSON LIVING TRUST, ET AL.
Appeal from the Chancery Court for Sullivan County
No. C0017133 E.G. Moody, Chancellor
No. E2009-01401-COA-R3-CV - FILED JULY 16, 2010
Warren A. Hakanson and Sylvia Harris sued Judith K. Holland both as Trustee of the G.W.
Hakanson Living Trust dated November 19, 1996 (“the Trust”), and individually, seeking,
among other things, to have Ms. Holland removed as Trustee and to have the Trust correctly
administered. The case was tried, and the Trial Court entered an order finding and holding,
inter alia, that the Trust, as written, did not comport with the intent of G.W. Hakanson, that
Ms. Holland had proposed a distribution which she believed met G.W. Hakanson’s intent,
that Ms. Holland remain as Trustee, and that prior distributions to Mr. Hakanson and Ms.
Harris should be added back into the Trust with Mr. Hakanson and Ms. Harris each to receive
$247,800 from the Trust and then the remaining Trust assets divided equally three ways with
Mr. Hakanson, Ms. Harris, and Ms. Holland each to receive one-third. Mr. Hakanson and
Ms. Harris appeal to this Court. We reverse, in part, finding and holding that there is no
ambiguity in the written Trust and that the Trust shall be distributed in accordance with its
clear written directions. We affirm the remainder of the Trial Court’s order.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed, in part; Affirmed, in part; Case Remanded
D. M ICHAEL S WINEY, J., delivered the opinion of the Court, in which H ERSCHEL P. F RANKS,
P.J., and C HARLES D. S USANO, J R., J., joined.
William S. Lewis, and Steven C. Huret, Kingsport, Tennessee, for the appellants, Warren A.
Hakanson and Sylvia Harris.
Thomas A. Peters, Kingsport, Tennessee, for the appellees, Judith K. Holland, Trustee of the
G.W. Hakanson Living Trust, and Judith K. Holland, individually.
OPINION
Background
Mr. Hakanson, Ms. Harris, and Ms. Holland are the three adult children of
G.W. Hakanson (“Deceased”) who died in May of 2007 at the age of ninety-one. After
Deceased’s death, Ms. Holland became Trustee of the Trust. The parties disagreed as to the
distribution of the Trust, and Mr. Hakanson and Ms. Harris filed this suit.
In pertinent part, Article Six of the Trust provides for the distribution of
Copper Creek Farms, FLP upon Deceased’s death but specifically states:
If the property making up the specific distribution set forth in this Article is not
part of the trust property at the time the specific distribution is to be made or
will not become a part of the trust property within a reasonable time my
Trustee shall disregard that specific distribution.
Article Eight of the Trust provides, in pertinent part:
Section 1. Division of Trust Property Into Shares
My Trustee shall divide all trust property not previously distributed into
separate shares of equal market value as follows:
a. One Share for Each Living Child
My Trustee shall create one share for each of my then living children.
***
Section 2. Distribution of Trust Shares for My Living Children
The trust share of each of my children who survive me shall be held,
administered and distributed as follows:
a. Distribution of Net Income and Principal
My Trustee shall promptly distribute, free of the trust, all
accumulated net income and principal of the trust share to each
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of my living children who survive me; provided, however, that
the share for my daughter, Judith K. Holland, and her
descendants shall be reduced by Two Hundred Forty-seven
Thousand Eight Hundred Dollars ($247,800) for advancements
she has received from me over the years and as a specific
distribution under Article Six of this Trust. If Judith K.
Holland’s share of the Trust is Two Hundred Forty-seven
Thousand Eight Hundred Dollars ($247,800) or less, then she
and her descendants shall receive nothing under this Article and
the trust property shall be divided among my other children and
descendants as provided in this Article Eight.
The case was tried without a jury, and the Trial Court entered its Opinion and
Order on June 1, 2009. As the operative facts in the case are not in dispute, we quote
verbatim the facts as found by the Trial Court in its June 1, 2009 order:
1. On November 19, 1996, [Deceased] executed the G.W. Hakanson
Living Trust. (Exhibit 6)
2. The Parties are the only children and the sole heirs of [Deceased].
3. [Deceased] was the initial Trustee of the Trust and upon his death on
May 16, 2007, the Defendant, Judith K. Holland, was appointed Trustee.
4. The undisputed testimony of the Parties and Sherry Dougherty, the
attorney who prepared the Living Trust Agreement, was that the Settlor,
[Deceased], intended that all three of his children share equally in his property
at his death.
5. [Deceased] created Copper Creek Farms, Family Limited
Partnership, on December 3, 1996 a few weeks after he signed the Trust.
6. [Deceased] transferred all ownership units in Copper Creek Farms,
FLP, to Judith Holland and her husband, Harold Holland, prior to his death.
7. The Trust Agreement directed that the Settlor’s interest in Copper
Creek Farms, FLP, be distributed to Harold D. Holland and Judith K. Holland,
equally.
8. The Trust Agreement provided that Judith K. Holland’s share of the
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Trust assets was to be reduced by the sum of $247,800.00, the value
[Deceased] attributed to Copper Creek Farms, FLP, as the result of an
appraisal.
9. The reference in the Trust to the advancements Judith K. Holland
had received over the years was a reference to his annual disbursements of the
family limited partnership units to Judith Holland and her husband, Harold
Holland.
10. On January 24, 2008, the Trustee, Judith K. Holland, made a
distribution of $100,000 each to Warren Hakanson and Sylvia Harris from the
Trust assets.
11. The Defendant, Judith K. Holland, has not received any distribution
from the Trust assets.
12. On or about March 24, 2003, [Deceased] established an annuity
account with AIG, naming the Plaintiffs, Sylvia Harris and Warren Hakanson,
beneficiaries.
13. The value of the AIG Annuity was $172,730.79 on June 11, 2007
when it was distributed to Sylvia Harris and Warren Hakanson, equally.
(Exhibit 5).
14. Neither Copper Creek Farms, FLP, nor the AIG Annuity were held
by the G.W. Hakanson Living Trust at the time of his death.
15. After the death of [Deceased], his attorney, Sherry Dougherty,
prepared a recapitulation of his estate with a proposed distribution of assets.
(Exhibit 2).
16. In her recapitulation, Attorney Dougherty included the value of the
AIG Annuity, which had already been distributed and which was not part of
the Trust, and the assigned value of Copper Creek Farms, FLP, which had
already been distributed and which was not part of the Trust. After dividing
that amount by three, she arrived at an amount for each child’s proposed share.
17. Her proposed distribution was derived by taking from Judith H.
[sic] Holland’s share the value of Copper Creek Farms, FLP, which she had
previously received; and from Warren Hakanson’s and from Sylvia Harris’
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share the value of one-half (½) of the AIG Annuity which they had previously
received.
18. Attorney Dougherty admitted that adding the value of the farm and
the AIG Annuity into the total, and then subtracting those values from the
distribution of the recipient, was not in strict conformity with the plain
wording of the Trust but was based upon her knowledge of the intent of
[Deceased] that each child receive an equal share of his property when he
executed his Trust Agreement.
19. All of the parties testified that [Deceased] established the AIG
Annuity and named Sylvia Harris and Warren Hakanson as beneficiaries in
order to offset the appreciation in the value of Copper Creek Farms.
In its June 1, 2009 order the Trial Court further found and held, inter alia:
Under a strict reading of the Trust, the value of Copper Creek Farms,
FLP, and the value of the AIG Annuity would not be part of the Trust assets,
thereby leaving the sum of approximately $622,856 which when divided
equally would be $207,618 to each of the three children. $207,618 is less than
the $247,800 already received by Judith K. Holland, so she would receive
$0.00 of the distribution of the Trust while her brother and sister would each
receive $311,428, resulting in $397,793.40 each to Sylvia Harris and Warren
Hakanson after adding the annuity in and $247,800 to Judith K. Holland. This
is the distribution proposed by the Plaintiffs.
This unequal distribution was not the intent of the Settlor.
***
IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED:
1. That Judith K. Holland shall remain as Trustee of the G.W.
Hakanson Living Trust dated November 19, 1996.
2. That Attorney Sherry Dougherty submit, in accordance with rules of
the this [sic] Court, her petition for attorney’s fees which shall be paid from
the Trust funds prior to distribution.
3. That the Trustee distribute the assets of the Trust, after deduction of
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Sherry Dougherty’s attorney fees, by adding the prior distributions to Sylvia
Harris and Warren Hakanson back to the assets allocating $247,800 to Sylvia
Harris and Warren Hakanson and equally dividing the remainder among all
three children.
4. That the Parties shall each be responsible for payment of their
respective discretionary costs and attorney’s fees.
5. The costs of this cause are taxed against the Trust.
Mr. Hakanson and Ms. Harris appeal to this Court.
Discussion
Although not stated exactly as such, Mr. Hakanson and Ms. Harris raise four
issues on appeal: 1) whether the Trial Court erred in construing the Trust based on parol
evidence when there was no allegation or finding of ambiguity, fraud, accident, or mistake;
2) whether the Trial Court erred in not removing Ms. Holland as Trustee; 3) whether the Trial
Court erred in assigning an incorrect value to Copper Creek Farms, FLP; and, 4) whether the
Trial Court erred in failing to order Ms. Holland to pay attorney’s fees, costs, and expenses.
Our review is de novo upon the record, accompanied by a presumption of
correctness of the findings of fact of the trial court, unless the preponderance of the evidence
is otherwise. Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001).
A trial court's conclusions of law are subject to a de novo review with no presumption of
correctness. S. Constructors, Inc. v. Loudon County Bd. of Educ., 58 S.W.3d 706, 710 (Tenn.
2001).
We first consider whether the Trial Court erred in construing the Trust based
on parol evidence when there was no allegation or finding of ambiguity, fraud, accident, or
mistake. As this Court has explained:
Trust instruments are interpreted similarly to contracts, deeds, or wills.
Marks v. Southern Trust Co., 203 Tenn. 200, 205, 310 S.W.2d 435, 437-38
(1958). Determining the settlor’s intent is important and may be easily done
by looking to the four corners of the trust instrument. Marks v. Southern Trust
Co., 203 Tenn. at 205, 310 S.W.2d at 438. Unless the trust instrument is
ambiguous or allegations of fraud, accident or mistake have been made, parol
evidence or evidence of surrounding facts and circumstances that contradicts
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or varies the terms of a written instrument may not be considered. HMF Trust
v. Bankers Trust Co., 827 S.W.2d 296, 299 (Tenn. Ct. App. 1991); Brown v.
Brown, 45 Tenn. App. 78, 95, 320 S.W.2d 721, 728 (1959).
In re: Estate of Marks, 187 S.W.3d 21, 28 (Tenn. Ct. App. 2005).
The Trial Court did not find any ambiguity in the written Trust. Nor do we.
Noticeably, the Trial Court even commented on the “plain wording of the Trust ….”
Furthermore, there were no allegations of fraud, accident, or mistake, and the Trial Court did
not find any fraud, accident, or mistake. Given all this, we must interpret the Trust document
as written.
There is no dispute that neither Copper Creek Farms, FLP nor the AIG Annuity
were assets of the Trust at the time of Deceased’s death. As such, under the clear, plain and
unambiguous language of the Trust, neither Copper Creek Farms, FLP nor the AIG Annuity
were subject to distribution under the Trust and neither should have been included in such
calculations.
The Trust clearly and unambiguously provides that the Trustee shall create one
share for each of Deceased’s living children and that:
My Trustee shall promptly distribute, free of the trust, all accumulated net
income and principal of the trust share to each of my living children who
survive me; provided, however, that the share for my daughter, Judith K.
Holland, and her descendants shall be reduced by Two Hundred Forty-seven
Thousand Eight Hundred Dollars ($247,800) for advancements she has
received from me over the years and as a specific distribution under Article Six
of this Trust. If Judith K. Holland’s share of the Trust is Two Hundred Forty-
seven Thousand Eight Hundred Dollars ($247,800) or less, then she and her
descendants shall receive nothing under this Article and the trust property shall
be divided among my other children and descendants as provided in this
Article Eight.
As the Trial Court stated:
Under a strict reading of the Trust, the value of Copper Creek Farms,
FLP, and the value of the AIG Annuity would not be part of the Trust assets,
thereby leaving the sum of approximately $622,856 which when divided
equally would be $207,618 to each of the three children. $207,618 is less than
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the $247,800 already received by Judith K. Holland, so she would receive
$0.00 of the distribution of the Trust while her brother and sister would each
receive $311,428, ….
This distribution would comply with the clear and unambiguous written language of the Trust
document. We note that the dollar amounts as given by the Trial Court are approximate, in
part because Ms. Dougherty’s attorney’s fee shall be paid from the Trust prior to distribution,
and the Trial Court taxed costs to the Trust, which shall be paid from the Trust prior to
distribution. We reverse that portion of the Trial Court’s order distributing the Trust assets
and remand this case to the Trial Court for exact calculation of the distribution using a strict
reading of the clear and unambiguous Trust language.
We next consider whether the Trial Court erred in not removing Ms. Holland
as Trustee. Mr. Hakanson and Ms. Harris argue on appeal that Ms. Holland breached her
fiduciary duty and her duty of loyalty to the Trust beneficiaries.
The Trial Court did not find any breach of either fiduciary duty or the duty of
loyalty. The evidence does not preponderate against these implicit findings by the Trial
Court. While Ms. Holland was in error as to the proper distribution under the Trust, as was
the Trial Court, such error, by itself, does not rise to a breach of fiduciary duty or the duty
of loyalty. Furthermore, the argument made by Mr. Hakanson and Ms. Harris rests upon the
allegation that Ms. Holland breached her duties when she refused to distribute the Trust
assets in compliance with the plain language of the Trust. As we already have held that the
Trust assets are to be distributed in accordance with the clear and unambiguous language of
the Trust document as discussed fully above, this argument is rendered moot. We find no
error in the Trial Court’s refusal to remove Ms. Holland as Trustee.
The issue raised regarding the valuation of Copper Creek Farms, FLP is moot
given our disposition of the first issue regarding the construction of the Trust document.
Copper Creek Farms, FLP is not a trust asset and, therefore, need not be valued for purposes
of this suit.
Finally, we consider whether the Trial Court erred in failing to order Ms.
Holland to pay attorney’s fees, costs, and expenses. We review a trial court’s decision
regarding attorney’s fees for abuse of discretion. Duke v. Simmons, No. M2008-01967-
COA-R3-CV, 2009 Tenn. App. LEXIS 174, at *9 (Tenn. Ct. App. April 30, 2009), no appl.
perm. appeal filed. As this Court has explained:
Our Supreme Court discussed the abuse of discretion standard in Eldridge v.
Eldridge, stating:
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Under the abuse of discretion standard, a trial court’s
ruling “will be upheld so long as reasonable minds can disagree
as to [the] propriety of the decision made.” A trial court abuses
its discretion only when it “applie[s] an incorrect legal standard,
or reache[s] a decision which is against logic or reasoning that
cause[s] an injustice to the party complaining.” The abuse of
discretion standard does not permit the appellate court to
substitute its judgment for that of the trial court.
Eldridge v. Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001) (citations omitted).
Appellate courts ordinarily permit discretionary decisions to stand when
reasonable judicial minds can differ concerning their soundness. Overstreet
v. Shoney’s, Inc., 4 S.W.3d 694, 709 (Tenn. Ct. App. 1999). A trial court’s
discretionary decision must take into account applicable law and be consistent
with the facts before the court. Id. When reviewing a discretionary decision
by the trial court, the “appellate courts should begin with the presumption that
the decision is correct and should review the evidence in the light most
favorable to the decision.” Id.
Delapp v. Pratt, 152 S.W.3d 530, 538 (Tenn. Ct. App. 2004).
Reasonable minds could disagree as to the Trial Court’s decision not to order
Ms. Holland to pay attorney’s fees, costs, and expenses, the very essence of a discretionary
decision. We will not substitute our judgment for that of the Trial Court. We affirm the Trial
Court’s refusal to order Ms. Holland to pay attorney’s fees, costs, and expenses.
We reverse the Trial Court’s distribution of the Trust assets and remand this
case to the Trial Court for distribution of the Trust in compliance with the clear and
unambiguous language of the Trust document and this Opinion. We affirm the remainder
of the Trial Court’s June 1, 2009 order.
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Conclusion
The judgment of the Trial Court distributing the assets of the Trust is reversed,
and this cause is remanded for distribution of the Trust in compliance with the written Trust
document and this Opinion, and for collection of the costs below. The remainder of the
judgment of the Trial Court is affirmed. The costs on appeal are assessed against the
appellee, Judith K. Holland as Trustee of the G.W. Hakanson Living Trust and individually.
_________________________________
D. MICHAEL SWINEY, JUDGE
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